Tokyoites
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Tokyoites

Venture Capital in Silicon Valley

A promising shartup owner spends a short time asking for money

Photo by Max van den Oetelaar on Unsplash

It is commonly understood by startups that they need to talk VCs into investing in novel business for at least three hours of grueling persuasion. Still the fund raiser doesn’t give a final go to a startup with any offer in the bank cheque. The job description of startup CEO generally states that they need to possess the skill-set in a capital-raising capability along with promotional appearance and style in the public. In fact, a decade ago, a young entrepreneur, Soichiro Minami, described that his two exclusive roles in fund seeking and marketing appeal were what CEO are supposed to play. He consumed hours after hours by meeting traditional investors in Tokyo. This picture might have changed, at least for now.

On June 26th, 2021, The Economist published a short story, “A new Tiger in town”, a hedge fund in Sand Hill Road. Tiger inflated its portfolio ten-fold year-on-year in the first five months of 2021 to 118 startups. The portfolio expanded to 400 dreamers for a brave scheme of SPACs. SPACs are special-purpose acquisition companies to reverse-merge with promising startups. Among the tech firms in the portfolio, investors in Palo Alto find such popular ones as Coinbase, a cryptocurrency platform with $5.6 bn, and Roblox, a game-maker for young developers with $3.8bn. More flow will be coming to Silicon Valley.

The newspaper coverage extends to a comparative study of Softbank in Tokyo and the Wall Street firm. It is an interesting research to describe Tiger Global in Silicon Valley.

From the article of the Economist

A New York hedge fund and a Japanese tech conglomerate hand in abundant pool of risk money to startups in Palo Alto. But there is a catch in money talks between tech performers and aggressive investor. The structure of ownership with equity and little debts does not allow the dominant control to exceed 51% in venture capital. Investors are not interested in board seats of startups. Founders don’t want to waste time to explain the business model with complicated technical jargons to financial experts who must be preoccupied with financial returns at the exit on IPO. Finance and technology rarely co-exist in the board room.

Financers look for returns such as IRR, internal rate of returns. The maximization is a reward. Technical professionals have a joyful moment when the technology breakthrough achieves for further advancement. They don’t talk to each other in the first place. One side needs monetary figures in return while the other is interested in technical miracles for the future.

Investors find the seeking of board seats wasting time for listening to unknown technical explanation and impossible to give the technical boss a managerial advice in finance. Yet, the boss of a promising startup carefully observes the structure of the ownership to keep it under control for the majority stake.

In the current situation, the picture looks better than in the past. Startups don’t waste their time talking VCs into further investment. Fully concentration on work accelerates the technical development of the new product and service to launch for the avid users around the world. The job description of CEO will have been modified to describe the hours spent with VCs. Obviously the shorter, the better.

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Hiroshi Hatano

Hiroshi Hatano

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Taught marketing @ universities in Tokyo, ex-I-banker @ UBS & mgmt consultant @ Kurt Salmon (Accenture Strategy now), Utah, Michigan + Georgia Tech educated